Half Year Results to 31 July 2019 TODAYS SPEAKERS Anthony Coombs - - PowerPoint PPT Presentation

Half Year Results to 31 July 2019

Tried and Tested

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TODAY’S SPEAKERS

Anthony Coombs Chairman Chris Redford Group Finance Director Graham Coombs Deputy Chairman

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“The resilience and dynamism of our business, especially in times of great political and economic uncertainty, continue to provide the foundation for sustainable and consistent growth. This gives us every confidence for the future.” Anthony Coombs, Chairman

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PROFITS RECORD OVER LAST 5 YEARS FOR GROUP

20 40 60 80 100 120 140 5 10 15 20 25 30 35 40 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Group 5 year record - steady and sustainable growth

Profit before tax from continuing operations £m Dividends declared pence per share

Dividends declared pence per share Profit before tax from continuing operations £m

• Group PBT up 3%, 16th consecutive increase
• Group Revenue up 7% and slight reduction in

Group Impairment v H1 18

• Basic EPS up 3% to 116.5p (H1 18: 112.5p)
• First Interim dividend up to 34p per ordinary

share against 32p per share in 2018 – 6% increase

• Improvement in motor impairment and RAY

reflects better early collections from underwriting improvements over past 18 months

• Average motor cost of sales per deal at £823

(Year to January 2019: £727). Strategic increase to encourage more internet deals and a slightly higher quality advance

• Increase in admin expenses reflect planned

investment in Advantage collection capability

Group Income Statement £m Jul 19 Jul 18 Change % Revenue 47.6 44.5 +7% Impairment

• 11.4
• 11.4
• 0%

Risk adjusted gross yield- RAY

• 36.2
• 33.1

+10% Cost of Sales

• 10.2
• 8.6

+16% Admin Expenses

• 6.6
• 5.7

+15% Finance Costs

• 2.3
• 2.1

+6% Profit before tax group 17.1 16.7 +3%

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Profit before tax £m Jul 19 Jul 18 Change % Motor Finance 16.6 16.3 +3% Property Bridging Finance 0.5 0.3 +80% Central finance income/costs 0.0 0.1

• Profit before tax group

17.1 16.7 +3%

OUR PROFIT AND LOSS – 6 months to July 2019

£m Jul 19 Jul 18 Change % Comment Fixed Assets and Right of Use Assets 2.3 2.3 Amounts Receivable Motor Finance (net) 273.8 263.5 +4% Amounts Receivable Property Bridging (net) 24.7 16.3 +51% Increased investment following successful pilot Other Assets 1.5 1.4 Total Assets 302.3 283.5 +7% Bank Overdrafts

• 0.2
• 0.4

Current overdraft facilities £7m Trade and Other Payables

• 3.1
• 2.7

Tax Liabilities

• 3.9
• 3.4

Accruals and deferred income

• 0.4
• 0.6

Borrowings

• 125.0
• 121.0

+3% Committed facilities £160m Financial and Lease Liabilities

• 0.7
• 0.7

Total Liabilities

• 133.3
• 128.8

+4% Net Assets and Total Equity 169.0 154.7 +9%

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GROUP BALANCE SHEET – 31 July 2019

• Committed funding facilities of £160m - now includes a NatWest £25m five year

revolving credit facility to 2024

• Group gearing at 31 July 19 is 74% (2018: 78%)
• £17m Group cash flow invested in six months to 31 July 2019

– Steady growth in motor and bridging receivables in H1 – Second interim dividend and main final dividend paid in H1 £10.4m (H1 18 £9.2m) – Current borrowing of £125m and committed facilities give significant investment headroom for growth

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TREASURY AND FUNDING

£m Jul 19 Jul 18 Balance b/f

• 166.0
• 171.9

Advances

• 76.6
• 72.8

Monthly Collections 72.1 67.7 Settlements/reloans 15.6 14.4 Debt recovery 8.6 7.3 Overheads/interest etc

• 17.2
• 15.8

Corporation Tax

• 3.1
• 2.8

Dividend

• 9.0
• 7.5

Balance c/f

• 175.6
• 181.4

Motor Finance Cash Flow

• Advances 5% higher than last year

benefitting from extra targeted acquisition cost in buoyant market

• Monthly Collections up 7% on H1 18

£m Jul 19 Jul 18 Balance b/f

• 108.0
• 105.0

Motor Finance outflow

• 9.6
• 9.5

Property Bridging outflow

• 6.0
• 5.1

Other outflow

• 1.6
• 1.8

Balance c/f

• 125.2
• 121.4

Gearing % 74% 78% Analysis of balance c/f Central +74.1 +76.3 Property Bridging

• 23.7
• 16.3

Motor Finance

• 175.6
• 181.4

Balance c/f

• 125.2
• 121.4

Group Cash Flow

• Continued motor book growth with

good H1 advances and collections

• Steady growth in Aspen in H1 in slower

property bridging market

• Conservative and lower gearing

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CASH FLOW: year to 31 July 2019

£m Jul 19 Jul 18 Balance b/f

• 17.7
• 11.2

Gross Advances

• 16.6
• 10.1

Retention Collections 1.8 1.1 Collections 5.7 4.5 Debt recovery 4.4 0.1 Overheads/interest etc

• 1.3
• 0.5

Balance c/f

• 23.7
• 16.3

Property Bridging Cash Flow

New Gross Advances: 40 (H1 18: 26) - 137 to date Repayments: 30 (H1 18: 9) -73 fully repaid to date

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• H1 profits at £16.6m – 15% ROCE for 8th consecutive year
• FCA motor finance review announced on 4th March 2019, seen as benign for Advantage
• Strong application demand reflects good labour market and recent real income improvement, despite

Brexit uncertainty.

• Used car market still stable - number of used cars financed by FLA members up 3% in 12 months to

June 2019

• Substantial market opportunity - Advantage still only penetrated c. 1% of the UK’s used car finance

market

• Repositioning for growth – H1 saw successful refocus on increased volumes at slightly higher quality

tiers, driven by scorecard refinements and improved commissions

ADVANTAGE MOTOR FINANCE OVERVIEW

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Average Loan profile Year to Jan 15 Year to Jan 16 Year to Jan 17 Year to Jan 18 Year to Jan 19 Six months to Jul 19

Number of loans 11,941 15,131 20,042 24,518 21,053 12,065 Advance £6,079 £6,121 £6,068 £6,207 £6,136 £6,353 Cost of Sales £558 £593 £642 £692 £727 £823 Interest rate flat per annum 16.8% 17.5% 17.9% 17.8% 17.9% 17.7% Average customer score* 871 867 862 869 864* 867* Original term in months 47 49 50 51 50 51

*Based on internal credit quality score – scores for year to Jan 19 and 6 months to July 19 versus year to Jan 18 include adjustments for newer HCSTC products

MOTOR FINANCE LOAN PROFILE BY YEAR OF ORIGINATION

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MOTOR FINANCE – Return on capital versus risk adjusted yield

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• Strong historic correlation between early repayments and end outcomes
• Underwriting improvements last year to tighten affordability and credit assessment criteria are

now giving rise to improvement in early repayments

MOTOR FINANCE – first repayment quality

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MOTOR FINANCE RECEIVABLES

Account Arrears Status Position at end July 2019 Position at January 2019

Volume of Accounts Percentage of Live Receivable Volume of Accounts Percentage of Live Receivable Up to Date 50255 81.13% 47307 79.17% 0.01 – 1 mthly payments 4890 8.16% 5037 9.10% 1.01 – 2 2314 3.68% 2334 4.16% 2.01 – 3 1399 2.14% 1440 2.53% 3.01 – 4 853 1.33% 903 1.53% 4.01 – 5 642 0.99% 594 0.99% 5.01 – 6 422 0.61% 422 0.73% 6.01 + 1257 1.96% 1072 1.80% Total Live Accounts 62032 £269.4m net receivables 59109 £254.7m net receivables Legal and debt recovery £4.4m net receivables £4.1m net receivables Total net receivables £278.8m net receivables £258.8m net receivables

• Secured property bridging market is worth c. £7.5bn per annum in England and Wales -

estimated to grow to over £10bn by 2021 (Mintel)

• Property market completions have slowed in recent months as published by HMRC – 12.4%

for July 2019 when compared to July 2018. Reflected in Aspen’s new loan facility advances and repayments being slightly slower than anticipated in H1

• 137 property bridging loan facilities deals done in 30 months up to end of July
• Promising overall levels of repayment to date - 73 loans repaid up to end of July 19
• Net receivables at £24.7m (H1 18 £16.3m) with average loan size now slightly increased to

c.£400k (was £375k). Monthly average interest rate just over 1% and original terms between 6 and 14 months

• Aspen achieved profit for H1 of £0.5m (H1 2018: £0.3m)

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ASPEN BRIDGING

• Tried and tested S&U business model, experienced management and conservative

approach gives confidence for growth in uncertain times

• Advantage – unparalleled record of consistent growth underpinned by:

– Continuous improvement of motor finance product and service by established team – 20 successive years of record profits – Excellent introducer relationships and operational procedures – Tighter underwriting based on continuous refinements – Strong market demand

• Aspen - increased investment continuing after successful pilot
• Strong and conservative Treasury position gives stability and ample headroom for growth
• S&U strategy reflects the alignment of interest between management and principal

shareholders emphasising stability and consistency as well as an ambition for growth

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OUTLOOK

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APPENDICES

• Used car finance on hire purchase – 90% sourced through brokers – 5% refinances for previous

customers – 5% direct from dealers

• 160,000th new deal transaction milestone reached this year
• c.2,000 deals per month underwritten and collected centrally – direct debit is the start repayment

method for all customers

• Customers typically borrow only once – loan of about £6,350 advance with £11,500 repayable including

interest over an average term of about 51 months

• Average £6,350 advance may typically be used to purchase good quality five year old used vehicle which

at inception has already seen heaviest years depreciation

• Advantage offers HP products only. No Personal Contract Plans

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MOTOR FINANCE – our business

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MOTOR FINANCE – FCA review work on motor finance market regulation

• FCA issued a report in March 2019 on their motor finance review. Advantage welcomed the

report’s balanced conclusions.

• The FCA work was focussed on 4 areas:

i) Responsible lending - FCA investigated the assessment of customer creditworthiness, including

• affordability. Advantage’s credit risk assessment separates credit scoring and credit affordability

in line with the FCA guidelines. ii) Remuneration Arrangements – FCA expressed concern at difference in charges on commission

• arrangements. Advantage have never offered such commissions to their brokers whose

commission cannot reflect either loan size or interest rate. iii) Transparency of information – FCA’s requirement that customers receive clear and transparent

• information. Advantage’s clear and transparent information is reflected in the “Crystal Mark”

from the Plain English Campaign. iv) Risk exposure to falling residual values – FCA has indicated that the typically larger lenders involved in this are adequately managing the risks. This risk primarily applies to PCP’s which Advantage do not offer.

Application submitted to AFL Customer chooses car at motor dealer Customer applies for finance via internet Dealer/Broker looks for a lender match AFL undertakes creditworthiness assessment* AFL undertakes affordability assessment** AFL undertakes vehicle checks Loan approval passed to Dealer/Broker Customer chooses appropriate loan payment/term to suit budget Pre-contractual information provided verbally and in writing Electronic link sent to customer to access

• n-line loan

documentation for customer to complete Customer confirms identity via secure Debit Card verification Customer income confirmed electronically or via payslip/bank stats Customer reads and agrees to loan terms via electronic signature Loan is set up, Supplier is paid, Customer ‘Welcome Pack’ is sent. AFL registers interest in vehicle. Monthly loan payments collected via Direct Debit Customer enquires about end of loan

• ptions

In the event of difficulty the Collections team is in hand to offer bespoke advice, solutions & forbearance to those that require it. Customer returns to AFL for further finance on next car Customer settles loan and owns car

• utright

AFL releases interest in vehicle 18

MOTOR FINANCE – customer loan journey

* Creditworthiness check includes multiple credit reference enquiries, bespoke credit score and various internal & external anti-fraud checks

** Affordability check includes income verification, assessment of monthly credit commitments and statistical analysis of cost of living at individual postcode level.

• Approval rate approximately 22% of applications, of which about 8% is

converted – over 680,000 applications in six months resulting in 12,065 deals

• Automated decision from bespoke scorecard system returned within 10 seconds
• n 95% of all applications received
• Well established compliance procedures supported by outside internal audit

function and external specialist legal advisers

• Monthly distribution of compliance and risk reports, quarterly TCF reports

signed off by all directors, strong complaint handling procedures and successful track record of compliance inspections

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MOTOR FINANCE – credit and risk management

From 2019

• Biomedical Science worker with previous loan from Advantage taken in 2017.
• Looking to refinance for new car
• Credit profile was assessed and although there were 2 historic defaults from

2016, all bills were paid on time including credit cards and existing Advantage loan.

• Agreed credit of £3,750 to be repaid over 54 months at monthly repayments

well suited to budget and only slightly higher than those payments made on previous agreement.

This customer commented “I’m not usually one to leave feedback to be honest, however feel like I have to about advantage finance. I have currently been with this company for 2 and a half years and was looking to refinance another vehicle. Advantage was fantastic from the start! Giving me price guidelines of what to look for etc. I ended up in a huge pickle with an awful car dealer...don’t really want to mention who, and half way through went back to Advantage who couldn’t be more helpful. They were absolutely fantastic and I felt like they really looked after me throughout the whole process. After getting Advantage involved all was sorted and my car would be collected less than 2 days later :). Advantage finance are an amazing company and have excellent customer service! Would give more than 5 stars if I could. Thank you so much”

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MOTOR FINANCE – our loyal customers

From 2019

• Cable Engineering worker had existing loan with Advantage taken out in

November 2017.

• He was looking for financial support to purchase 2nd car for his wife
• Credit profile was reassessed with his wife as joint applicant.
• Despite historic CCJs from several years ago, these were almost fully

settled and his previous Advantage loan had excellent payment history.

• Application approved and Advantage provided a £4,000 loan to be repaid
• ver 36 months at monthly repayments well suited to their budget.

This customer commented “Absolutely fantastic from 1st phone call to driving my car away Advantage Finance was easy to deal with hassle free with excellent phone communication highly recommended”

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MOTOR FINANCE – our loyal customers

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“Spoke with Advantage today and they were very helpful! So polite friendly and very good at customer

• service. All staff are brilliant and

helpful! Had a great 3 year journey having finance with them, very good prices on finance.” “I’ve been with Advantage Finance for nearly 2 years now and had to contact them regarding a problem with paying my monthly payment this month. I spoke with a lovely lady who was friendly and listened to the reason. She was quickly able to offer a solution which worked for me and put it into place without

• delay. I can’t thank Advantage

enough.”

“They were fantastic from start to finish. I cannot thank them

• enough. They made the whole

process so easy. Everyone was polite and helpful. Advantage were an absolute dream.”

“I’ve been having financial problems due to being off work and struggling to make my payments. I spoke to a lovely lady who was very reassuring and understanding. She helped me to put a payment plan in place to help me get back on track.”

MOTOR FINANCE – customer testimonials

• Aspen started trading in February 2017 and provide a “fast, flexible, friendly and

fair” service to customers with property bridging loan requirements

• 137 secured property bridging loan facilities have been provided to customers

during the 30 months with an average gross loan facility of c.£400,000 at average maximum loan to value of 71%

• Bridging loans are all secured on a wide range of properties from residential to

commercial and average original term is 9 months

• Repayment is made either before or at the end of the loan term and all facilities

have a built in option for the lender to extend the facility for a further 2 months where required and appropriate – 73 loan facilities fully repaid to date

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PROPERTY BRIDGING FINANCE – our business

24 Customer contacts broker Broker looks for a lender match Broker confirms that confident to place with Aspen. Aspen issues illustrative quote Broker submits for formal DIP *Aspen Underwrite the case fully <3hrs On approval Aspen instructs valuer and lawyers

Aspen lawyers issue data pack to customer

Client provides Legal undertaking and valuation time and date

****Aspen + Lawyers receive valuation and title report ***Aspen visits property External valuation Aspen issues funds and title interest registered Broker commission paid Aspen maintains monthly contact with customer Customer exit strategy plan in place Aspen closing account statement Aspen receives repayment of funds Lawyers release title interest

**Broker returns Application and Assets & Liability forms.

• *Includes credit checks and Rightmove+ assessment, any manual edits to DIP (Decision in Principle) made at this point.
• **Fraud and electronic ID checks performed at this point.
• ***Customer interview & security review take place.
• ****Audited by experienced valuer retained by Aspen, as well as any final edits made to the DIP based on accurate valuation.

PROPERTY BRIDGING FINANCE – Aspen process

Broker gets exclusivity from customer

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Broker Feedback – September 2019

“Common sense and practical lending are concepts that are synonymous with Aspen Bridging. I have come to know the underwriters at Aspen quite well over the course of my dealings with Aspen and they have never let me down. Cases that require a sensible and practical underwriting process I put straight onto their online portal. Their ‘always available’ approach via their mobiles mean that if ever I have any questions that I can get the answer within minutes rather than days. I would thoroughly recommend them to other brokerages large or small”.

Borrower Feedback July 2019

“I have never seen underwriters get so hands on and be a force for progress in a deal, Aspen were thorough and forward thinking from inception. I will be returning to Aspen for any future funding requirements I have and will recommend them to others in the

• industry. Keep up the good work and no doubt we will speak again

soon about a new deal!”

Borrower Feedback June 2019

“Aspen’s speed is second to none, I had a very tight deadline to complete on a property after my previous finance fell through at the last hurdle. Aspen were able to look efficiently and practically at the deal as a whole and secured the site for me ahead of my already tight deadline. Thank you to all involved in the transaction especially Arthur who performed from start to finish.”

PROPERTY BRIDGING FINANCE – customer and broker testimonials

Broker Feedback May 2019

“I have worked with Aspen from their launch to market back in

• 2017. Their products consistently stay at the forefront of the

market and what is possible to achieve using bridging finance. If a client needs speed, service and high LTV then in my eyes there is

• nly one lender, Aspen. Time and again they have proven

themselves on a variety of cases and situations; Needless to say I am an ‘Aspenite’.”

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• The customer was originally purchasing a commercial unit to expand his
• business. Due to a new contract he needed extra space to store

products and increase capacity quickly (3 week timeline). The borrower subsequently exited us with a commercial mortgage once the new titles had been registered, and income on the property stabilised.

PROPERTY BRIDGING FINANCE – case study

Borrower Quote – August 2018

“The completion of my loan went smoothly and to plan within the 3 week period required. However, Given my loan has recently redeemed in full I thought I would highlight Aspen’s customer care/management process throughout my term and to redemption. Sonny, has been exemplary; from keeping me updated on figures through to assisting with a land registry title split during the term he was always on the other end of the phone. I never felt in the dark or not in control of the loan because of this. Aspen’s level of service throughout the life of a loan is a level above what I have experienced with other lenders providing similar products.”

Continuing Business £m Year to Jan 15

IAS39

Year to Jan 16

IAS39

Year to Jan 17

IAS39

Year to Jan 18

IAS39

Year to Jan 19

IFRS9

Revenue 36.1 45.2 60.9 79.7 89.2 Cost of Sales

• 6.7
• 9.0
• 12.9
• 17.3
• 15.7

Impairment

• 5.9
• 7.6
• 12.1
• 19.5
• 23.5

Admin Expenses

• 7.0
• 7.3
• 8.8
• 9.9
• 11.2

Finance Costs

• 1.7
• 1.8
• 1.7
• 2.8
• 4.5

Profit before tax 14.8 19.5 25.4 30.2 34.6

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GROUP INCOME STATEMENT – our five year record

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